Photovoltaics: new policy challenges for Europe

After the turn of the century governments across Europe set in place a series of programmes to expand investment on grid-connected solar power technology, especially photovoltaics (PV). But in face of rapidly declining costs most of these programmes have been tapered in recent months. Using a simple cost model this article shows that PV technologies can indeed supply electricity to the grid for less than 0.10 €/kWh in large swaths of the continent, apparently justifying this policy change. However, the roll back of fixed rates to PV suppliers will likely result in a market structure close to perfect competition, where profits are not expectable and the price should fall towards marginal generation cost: 0 €/kWh. Due to the scalable nature of PV, many consumers in Europe are now able to produce their own electricity at a cost considerably lower than the rates demanded by grid utilities. Investment on PV is thus set to continue in spite of recent policy changes, but henceforth on off-the-grid systems, conceived for self consumption. Long term this trend presents serious challenges to utilities and traditional electricity suppliers, putting at stake the existing electricity market framework.

This article continues and formalises my recent work on Photovoltaics in Europe, in particular its potential impacts on the electricity market. The roll back of feed-in-tariffs (FIT) seems justified by the rapid decline in PV modules and installation prices. However, this may have unintended consequences that I try to explore.

In this article I used the Solar Power Cost Calculator (SPCC) to compute maps of PV electricity cost in Europe, that put this question into a geographic perspective. Electricity at competitive prices is now a possibility in large swaths of the continent.

I then present an overview of the Perfect Concurrency (or Perfect Competition) concept, pointing out that most of its conceptual characteristics are met by an electricity market with large numbers of small suppliers. This supports the hypothesis that without FIT PV investors will have no incentive to connect their systems to the grid, rather using the electricity for self consumption.

Using the results from the SPCC and electricity rates to consumers I computed anther map portraying the gap between the cost of a Wh generated by a PV system and that of a Wh tapped from the grid. Half a dozen member states already exhibit gaps over 0.10 €/kWh, with another half also in positive territory.

These results lead to a reflection on several open challenges: (a) the smart grid concept, (b) scaling tools and methods for off-the-gird systems, (c) the future structure of the electrical grid and (d) unexpected impacts from storage technology developments.

All journals hosted by Frontiers are published in open access and thus the article is available to the public in its entirety.